When the Supreme Court reopened the iron-ore mining door some more in Karnataka, miners in Orissa breathed a Rs 50,000 crore sigh of relief.
Three weeks ago, when the Supreme Court reopened the iron-ore mining door some more in Karnataka, miners in Orissa breathed a Rs 50,000 crore sigh of relief. Also in the dock for some offences of a similar nature, Orissa’s iron-ore miners, who produce a third of this mineral that is critical to steel, had been dreading their fate, which lay in the hands of a Central government panel.

The last time the Shah Commission—whose remit is to study violations in iron ore and manganese mining in India and recommend changes— submitted a fact-finding report, made public in September 2012, it led to all iron-ore mining in Goa grind to a halt. So, as it prepared to submit its report on Orissa, by July, there was a gnawing sense of fear among miners, user companies, and government functionaries and politicians at both the Centre and the state levels, that this eastern state could go the Goa way.

For companies with steel units in the neighbourhood, like Tata SteelBSE -2.23 %, Jindal SteelBSE -1.06 % and Power and SAIL, it would mean losing access to their key input. For the Centre, it would mean another blow in its efforts to shore up industrial growth. For Orissa, it would mean the loss of its economic engine.

Most of all, for iron-ore miners, it would mean the loss of a lucrative business stream. Already smarting because of a Rs 65,000 crore recovery claim raised by Orissa, they were bracing for the worst. But now, feels senior advocate Ashok Parija, who is contesting these claims on behalf of some Orissa miners: “Mining will not stop. After this (Karnataka) order, it is clear that most leases here beat the Karnataka test.”

The ‘Karnataka test’ is a 10% straying limit. Cancelling 43% of iron-ore leases in Karnataka, the SC allowed the remaining, which had not strayed beyond 10% of their boundary (15% in certain cases), to reopen. “The nature of violations in Orissa is different in nature,” adds a member who has worked closely with the central empowered committee (CEC), the panel doing the fact-finding for the SC on illegal mining. “Further, unlike Karnataka or Goa, Orissa, for whatever reason, has been doing its bit to correct the situation,” he adds, on the condition of anonymity.

Since 2010, much before the Shah Commission was set up, the Naveen Patnaik government in Orissa has been putting in place checks and balances to detect illegal mining. Even the CEC noted this in its April 2010 report to the SC: it said that “…the state has taken corrective steps, though rather belatedly…”, but also added that “serious shortcomings” still remain. Orissa asked miners without valid clearances to stop mining. It initiated inquiries against companies allegedly doing illegal mining and suspended several state government officials. “Since 2009, we have suspended nearly 200 mines working on a ‘deemed extension’ (a much abused contingency provision for renewals) without statutory clearances,” says Deepak Mohanty, director of mines, Orissa.

The state government, further, made public data on leases, permits and status. It made registration compulsory for traders and truckers, removed stockyards outside a 40 km radius of a mine, issued e-permits that enabled real-time tracking of all consignments and asked the railways to check permits before allowing rakes to be loaded. “That is one kind of theft that would go completely unaccounted: trucks that loaded 20 tonnes, declaring half as much, and bribing their way through weigh bridges manned by class four employees,” says Rabi Das, whose petition in the Supreme Court brought the CEC to Orissa.

According to Das, the state had not turned a new leaf; its hand was forced when the case— now famously known as the ‘RBT case’ (after Ram Bahadur Thakur, the lease owner)—of two people claiming rights to mine a piece of land neither had the approval for rocked the state assembly. Since both the accused were reportedly associated with the ruling Biju Janata Dal (BJD), the state had to initiate an inquiry. “If this (the RBT case) hadn’t blown up, it would have been difficult to take action,” says a former state mining official, on the condition of anonymity.

While those corrective measures may yet avert a shutdown, three other subsequent steps taken by Orissa—many say to save its face with the Shah Commission—has caused recrimination among miners, hurled the state into a legal standoff with the Centre and cast shadows of uncertainty in iron-ore mining in Orissa. And untangling all this will be a long, legal battle.

…AND CRACKS DOWN

In October 2012, in the backdrop of a shutdown in Goa mining and the Supreme Court meaning business in Karnataka, Orissa stunned everyone with three big decisions. One, it asked 204 mines in the state to pay fines amounting to Rs 65,000 crore for extracting more iron ore than they had permission for in the last 10 years. Two, the state barred the private sector from all new mineral leases, reserving everything for its own Orissa Mining Corporation (OMC), which too had been fined Rs 8,700 crore. Three, it made it conditional on miners whose licences were awaiting renewals to supply 50% of their iron ore to steel units in the state and only then sell outside; it also declared that such leases on second or subsequent renewal can only retain reserves for 30 years of captive use.

According to a director of a large merchant miner that has challenged the fines and the captive clause, the policy moves don’t hold. “On the one hand, you practically restrict all production. On the other, you insist material should not leave the state, which firstly isn’t constitutional. Is the state ready for a hundred steel plants?” he says, not wanting to be named.

On the face of it, the battle lines seem to be drawn around the Rs 65,000 crore fine. On one side is the Orissa government. On the other side are the miners, who feel the basis and quantum of the fine are misplaced, and the Centre, which feels the Naveen Patnaikgovernment is overstepping its jurisdiction.

According to Orissa miners, some of the richest in India, unlike the worst of Karnataka mining offenders, they were not stealing from land they didn’t have permission to mine on. Further, they add, what the state is terming over-production is actually allowed under the rules. The Centre supports them on this, citing the 20% mark-up over the mining plan approved by the Indian Bureau of Mines (IBM) that is permissible. Says Mohanty: “It (the Centre) said that, in 71 of the 104 cases, where there was a slight increase beyond the IBMlimits, subsequent mining schemes in each and every case had been approved, and thus the excess regularised.”

Parija adds this would hold even on the ‘10% Karnataka rule’. “Goa or Karnataka mines are 5-10 hectare mines, Orissa’s are 25-1,000 hectares,” he says. “A 10% deviation will be huge, and that couldn’t have happened because most of these leases are adjacent.”

The Centre also argues that the clause under which Orissa has claimed the fines—Section 21(5) of the Mines and Mineral (Regulation and Development) (MMDR) Act 1957—applies to production outside a mine owner’s area, not excess production within. It has advised Orissa not to colelct the fines while 20 miners await the order of a Central tribunal on the matter.

Any resolution on the matter will take time. “We have only issued show cause notices. Hearings have to be completed so that the amount is reconciled. Only then can a formal notice be issued,” says Mohanty. The tribunal too is likely to wait for a formal notice, says a senior official in the Central ministry.

This is creating a piquant solution for miners as the state is also reviewing their applications for renewals. Mohanty says 337 mines are on ‘deemed extensions’; further, of these, only 58 have all statutory clearances. The state has said that, in deciding on each renewal, it will consider the past history of the occupant, including alleged irregularities committed by it.​

HOW IT UNRAVELLED

Watching all this from the sidelines is the Shah Commission, led by MB Shah, the retired Supreme Court judge. His second-in-command is UV Singh, the pugnacious forest officer of Karnataka whose defiant documentation of the mining operations of the Reddy brothers formed the basis of the state Lokayukta’s report.

The Commission’s term ends on July 16, and the Orissa report, for which it ended its public meetings on April 21, will be its last for now. Such is its perceived influence and importance that one view is that Orissa acted against the miners so that the Shah Commission might cut it some slack, and events might not spiral out of its control, as they did in Goa.

In October 2012, Goa went into a tailspin after the Shah Commission report, which said that Rs 35,000 crore of illegal mining had happened in the state, was tabled in Parliament. This was the trigger for a public interest litigation (PIL) to be filed by an NGO called Goa Foundation in the SC, which banned all iron-ore mining in Goa.

Rajesh Verma, Orissa steel and mines secretary, asserts the state’s actions were proactive, and not reactive. He points out the notification for the Shah Commission came on November 22, 2010, while Orissa issued the order for its inquiry on August 25. The terms of the Orissa probe was to inspect how much each mine in five minerals— iron ore, chrome, manganese, bauxite and limestone—was producing vis-a-vis its approved limits. “We issued notices in September 2011, well before the Shah Commission’s first visit to the state in November 2011,” he adds.

“This is all a show for (Justice) Shah and the upcoming elections,” alleges Niranjan Patnaik, state Congress leader. “What about the pits in huge tracts of unleased area, relinquished area and OMC’s own mines? Has the Shah Commission seen these tracts, where the mafia ran riot with government patronage?” The state’s complicity is why, alleges Niranjan Patnaik, even as Karnataka and Goa agreed to an enquiry by the Central Bureau of Investigation(CBI), Orissa didn’t. “A CBI enquiry can well start with my mining baron cousins, but it must.”

CENTRE-STATE CONFLICTOrissa, on its part, has been arguing with the Centre for some time to reduce profits in the hands of miners—and increasing revenues in the hands of the state. At present, states earn a royalty, of 10% of the average sale price per tonne, on the iron ore sold.The Centre fixes this royalty rate. Although this rate is revised every three years, the 10% rate has been in place since 2009. Before that, it was a flat Rs 12-27 per tonne, which meant miners pocketed every bit of gains from a price increase. With China on a building boom, iron ore prices shot up four-fold between 2001 and 2011.

Orissa began asking the Centre to levy a windfall tax. On September 3, 2011, chief minister Patnaik wrote to the prime minister that, “I am concerned about the huge profits accruing to merchant mining companies, a large number of which are in private hands.”

Patnaik cited the phenomenal increase in NMDC’s net profit—from Rs 1,245 crore in 2001-02 to Rs 18,815 crore in 2010-11. Dinsha Patel, the minister of mines at the Centre, replied to Patnaik that Orissa’s coffers also rose proportionately: the state earned Rs 1,852 crore in iron-ore royalties in 2010-11, despite a fall in production, against Rs 668 crore collected the previous year.

A former mines ministry official, on the condition of anonymity, admits the Centre profited more than the state during the boom. “The Centre increased export duty (collected by the Centre) from 5% to 20% in February 2011 and to 30% in December 2011,” he says. “Orissa’s demand is fair enough. Royalty earnings also surged, but not to the extent exports did.”

WHAT HAPPENS NEXT?

All eyes are now on the Shah Commission, which had made three trips to Orissa. A battery of highprofile lawyers—including Ram Jethmalani representing Thriveni Earthmovers, andGopal Subramaniam representing seven companies, including Tata Steel and Indrani Patnaik—made a submission to it to hear their clients out individually, something that was not done in Goa.

Between February and April, miners defended their case to Justice Shah in Ahmedabad, Gujarat, where he is based. They have also been offering olive branches. During the commission’s hearings in Orissa, a group of miners offered to create a trust of Rs 100 crore for developmental work in the state.

Although miners are still going about operations and production hasn’t suffered, a period of trials and tribulations lies ahead for them. For example, the ‘RBT case’ accused, who were found guilty of illegal mining by Orissa, won relief from the Centre, and their cases are presently in the Orissa High Court. The state’s decision to insist on captive mining has also ended up in courts.